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The Federal Circuit Messes with (the Eastern District of) Texas Yet Again

Over the past decade, the U.S. District Court for the Eastern District of Texas (“E.D. of Texas”) has become a favorite forum for patent litigation. Plaintiffs, some of which may be characterized as “non-practicing entities” or, less politely, patent trolls, fare significantly better than defendants in this jurisdiction. So it’s not surprising that the first legal maneuver of many defendants is to move for a change of venue to a more appropriate federal district court. The judges in the E.D. of Texas feel so strongly that their court is the most proper jurisdiction for patent claims, they routinely reject these transfer motions. For patent defendants of lesser means, such a denial creates a powerful incentive for them to settle before trial.

With increasing frequency, larger corporate defendants have been seeking “extraordinary relief” from the U.S. Court of Appeals for the Federal Circuit through a writ of mandamus. Despite the extremely high burden this writ imposes on defendants ( they must show “clear abuse of discretion or usurpation of judicial power”), in the last two years the Federal Circuit has unanimously reversed six E.D. of Texas refusals to transfer patent cases (In re Nintendo; In re Hoffmann-La Roche; In re Genentech; In re Zimmer Holdings, Inc.; In re Volkswagen of America; and In re TS Tech USA Corp.).

Make that seven times. On November 8 in In re Microsoft, the Federal Circuit reversed the E.D. of Texas’s denial of Microsoft’s motion to transfer patent licensing company Allvoice’s infringement claim to the Western District of Washington. As in the six previous cases, the appeals court found that the trial court abused its discretion by improperly weighing the interests of justice and the convenience to the parties and the witnesses for plaintiffs and against defendants. There was, the court wrote, a “stark contrast” in the interests, as Microsoft’s witnesses are thousands of miles from the E.D. of Texas and only two of Allvoice’s witnesses (two purchasers of the allegedly infringing Microsoft product) resided in Texas. Allvoice’s argument that it had a “presence” in the Eastern District – an office in Tyler with no employees and an incorporation in Texas filed all of 16 days before suing Microsoft – found no favor with the court, which dismissed the office and incorporation as “recent, ephemeral, and an artifact of litigation appear[ing] to exist for no other purpose than to manipulate venue.”

This wasn’t the first time that the Federal Circuit rejected a plaintiff’s maneuvers to manipulate the circumstances to favor the E.D. of Texas. In Hoffmann-La Roche, the transfer of documents to the local office of the plaintiff’s lawyer in order to establish them as “Texas documents” to establish the venue as convenient was flatly rejected by the appeals court. In In re Zimmer, the plaintiff claimed local ties because it held an empty office within the district court’s jurisdiction in the same space as another of its lawyer’s clients. The Federal Circuit rightly saw this as “a classic case where the plaintiff is attempting to game the system.” In In re Genentech and In re TS Tech, neither plaintiff bothered to even try to create a facade of physical presence through “local” documents or offices.

When are the judges in the Eastern District of Texas going to grasp the rather loud and clear message that the Federal Circuit is sending it over and over again: take motions to transfer venue more seriously? The federal statutory provision permitting transfer of venue, 28 U.S.C. § 1404(a), exists to ensure fair administration of justice and reduce the costs of litigation. It should not be so easily ignored, especially when plaintiffs’ lawyers blatantly game the system with thinly veiled ruses. This district court’s persistent disrespect for the principles behind the transfer law in order to protect their judicial turf is deeply troublesome. It also indirectly harms consumers and the larger business environment. Each defendant which is forced to appeal denial of venue transfer must devote resources to lawyers and court costs which can be better spent on innovation and business growth.

Change of venue is all very well, but the implicit argument is that E.D. of Texas is unfair to the defendants, whereas other courts might be balanced. Whilst this may be a valid argument, isn’t the real problem that the US patent system actively permits a legalised extortion by the patent trolls?

With the cost of litigation in the millions, a non-infringing defendant is faced with unpalatable choices about how much it will end up consting him. Whereas, the troll, with an investment of as little as a week of a junior associate’s time can reap hundreds of thousands if not millions.

This fundamental asymmetry is what needs fixing and not making venue switches easier.

And, yes, we are being sued by a “non-practising entity” with what many sets of lawyers have variously described as a “shake down”, “racket”, “dark side”….